The U.S. retail sector, which suffered a lot due to soaring commodity prices, is staging a solid turnaround. The sector put up a brave fight amid inflationary pressures, which saw sales growing over the past few months.

Retail sales rose once again in November after an unexpected decline in October, thanks to a solid start to the holiday season and easing inflationary pressures. Given this situation, investing in consumer discretionary and retail funds like Fidelity Select Retailing Portfolio (FSRPX Quick QuoteFSRPX - Free Report) , Fidelity Select Consumer Discretionary Portfolio (FSCPX Quick QuoteFSCPX - Free Report) and Fidelity Select Leisure Portfolio (FDLSX Quick QuoteFDLSX - Free Report) would be a wise decision.

Retail Sales Rebound

The Commerce Department reported on Dec 14 that retail sales totaled $705.7 billion in November, rising 0.3% month over month after unexpectedly declining 0.2% in October. The November figures also beat analysts’ expectations of a decline of 0.1%.

Year over year, retail sales increased 4.1% in November. E-commerce is fast gaining prominence, which is once again driving overall retail sales. Online sales rose 1% in November after declining 0.3% in October.

Sales at motor vehicles and parts dealers grew 0.5%, while furniture stores saw an increase of 0.9%.

Although inflation is still high, it has declined sharply over the past year following the Federal Reserve’s adoption of an aggressive monetary tightening campaign that has seen it raise interest rates by 525 basis points so far.

The Fed’s measure started bearing results, and inflation has eased considerably over the past 18 months from its peak of 9.1% in June 2022. Cooling inflation saw the Fed leaving interest rates unchanged in its current range of 5.35-5.5% in its past three policy meetings.

This has raised hopes that the Fed will soon end its monetary tightening campaign. The Fed also took a dovish stance in its December FOMC meeting and hinted at multiple rate cuts in 2024.

Lower borrowing costs are certainly going to help the retail and discretionary sectors, as people have been spending cautiously. Also, the holiday season has started on a high note, and retail sales are soaring.

3 Best Choices

We have selected three mutual funds with significant exposure to the retail and discretionary sectors. The funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) and are poised to gain from the above factors. Moreover, these funds have encouraging three and five-year returns. Additionally, the minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors in identifying potential winners and losers. Unlike most fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Retailing Portfolio fund aims for capital appreciation. FSRPX invests a large portion of its assets in the common stock of companies engaged in merchandising finished goods and services, primarily to individual consumers.

Fidelity Select Retailing Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSRPX has returned nearly 1.3% and 11% over the past three and five-year periods, respectively. Fidelity Select Retailing Portfolio fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.72%, which is below the category average of 0.79%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Consumer DiscretionaryPortfolio fund invests the majority of its assets in common stocks of companies principally engaged in the manufacture or distribution of consumer discretionaries. FSCPX uses the fundamental analysis of factors such as each issuer's financial condition and industry position, as well as market and economic conditions, for its decisions.

Fidelity Select Consumer Discretionary Portfolio fund has a history of positive total returns for more than 10 years. Specifically, FSCPX has returned nearly 2.6% and 10% over the past three and five-year periods, respectively. Fidelity Select Consumer Discretionary Portfolio fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.76%, which is below the category average of 0.79%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Fidelity Select Leisure Portfolio fund invests the majority of its assets in common stocks of companies principally engaged in the design, production, or distribution of goods or services in the leisure industries. FDLSX uses fundamental analysis of factors such as each issuer's financial condition and industry position, as well as market and economic conditions, for its decisions.

Fidelity Select Leisure & Entertainment fund has a history of positive total returns for more than 10 years. Specifically, FDLSX has returned nearly 9.5% and 11.6% over the past three and five-year periods, respectively. FDLSX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.74%, which is below the category average of 0.79%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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